The Texas Windstorm Insurance Association (TWIA) need immediate financial reform that ensures every premium dollar paid to TWIA actually benefits those coastal customers. The ability to pay coastal claims and keep insurance affordable for coastal residents is both a personal and public policy concern.

For many years, TWIA’s fragile and insufficient funding mechanism has been financially hazardous to both TWIA customers and other insurance consumers across the state.

How? By law and statute, customer premiums should pay customer claims, TWIA operating expenses and contributions to a catastrophe fund. But the rates that generate those premiums have been seriously inadequate and actuarily unsound for decades, according to analyses by the Texas Department of Insurance and TWIA itself.

A major cause of TWIA’s rate inadequacy is debt expense created by TWIA’s bond-based financing system. Premium dollars that should be used to pay claims or saved for future storms are instead spent on interest on bond debt for past storms. For example, TWIA used all its bond money to pay for Hurricane Harvey in 2017, and then paid principal and interest on those bonds until mid-2022. Every dollar paid in interest was a dollar not available for paying claims. The expense of those bonds was a main driver of TWIA’s actuarial insufficiency.

TCAIS believes TWIA must operate at a high level of efficiency so that every premium dollar is maximized to benefit TWIA customers. TWIA funding policy should protect customers from the interest, issuing expense and uncertainty of a mandatory bond issue that must be made to pay claims after a storm.

The Texas Legislature should consider reforms that eliminate the purchase of bonds with a new method of funding. TCAIS and its member companies support replacing the bonding component of the funding mechanism with a clear, transparent, predictable layer funded by a conditional statewide market surcharge that would be collected only if TWIA’s catastrophe reserve fund falls below a certain level. Such a system would maximize the value of TWIA premiums and allow more to be transferred annually to the catastrophe fund, thus reducing the potential of a surcharge. 

The other current TWIA funding layers, including insurance company assessments and reinsurance, would remain in place but would be built on a more stable, predictable platform. The overall result would be a more predictable, more readily available, less costly funding structure that would benefit both coastal and inland insurance consumers in Texas.